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LABORATORY-GROWN DIAMONDS

AS LAB-GROWN DIAMOND EXPORTS INCREASE DURING PANDEMIC, INDUSTRY LEADER WARNS OF IMMINENT CONSUMER CONFIDENCE CRISIS

 

A recent report by India’s Gems and Jewelry Export Promotion Council (GJEPC) showed that, despite the ongoing COVID pandemic, the country’s exports of laboratory-grown diamonds grew by a record 40 percent in August.

According to GJEPC data, year-on year exports of laboratory-grown diamonds increased by 37 percent in June, 22 percent in July and 40 percent up in August. This compared to decreases in the export of natural polished diamonds of 42 percent in June, 33 percent in July and 22 percent in August.

Although laboratory-grown diamonds make up a still small percentage of India’s overall exports, coming in at only 4 percent in August, there are already more than 2,000 units manufacturing lab-grown diamonds in India, most of them in Surat. 

“Many natural diamond manufacturers have shifted to lab-grown manufacturing post COVID,” said industry analysts Aniruddha Libe, speaking to the Times of India, “the reason being that rough diamond prices have appreciated by about 15 percent in the local market and the demand for natural diamonds have decreased.”

In volume terms, laboratory-grown diamond exports in carats are likely to be considerably higher than 4 percent, because of what has become the synthetic stones most attractive attribute, its price, which at present is running anywhere between 30 percent and 60 percent less than natural diamonds.

A LONG-TERM THREAT TO CONSUMER CONFIDENCE

Speaking to the 2020 World Diamond Congress of the World Federation of Diamond Bourses (WFDB) and the International Diamond Manufacturers Association (IDMA), on September 14, Gaetano Cavalieri, president of CIBJO, the World Jewelry Confederation, described the growing price differential between laboratory-grown and natural diamonds to be one of the most dangerous threats to consumer confidence facing the industry.

Noting that he does not question the legitimacy of laboratory-grown diamonds, and that such “goods have as much right to be offered and sold in the marketplace as do natural diamonds,” he said that what concerns him is when deliberate actions are taken to blur the distinction between laboratory-grown diamonds, or insufficient measures are instituted to ensure that the consumer understands that two different product categories are concerned. This is true not only where it comes how they were grown, but also to the economic models by which each one operates, Cavalieri stated.

“If consumers do not properly understand the differences between them, they cannot make informed purchasing decisions,” the CIBJO present said.

“What we also have seen over the past several years is that — as the number of laboratory-grown diamond producers has grown, and so, exponentially, has the number of laboratory-grown diamonds in the marketplace — economic forces have caused the price difference between two categories for similar quality stones to become ever wider,” Cavalieri said.

When consumers realize that their laboratory-grown diamonds have essentially no resale value, they will feel deceived and cheated. They will likely not only lose confidence in the unique selling proposition of laboratory-grown diamonds, but also in the USP of natural diamonds and the USP of jewelry in general, said CIBJO President Gaetano Cavalieri.

Indeed, he added, “there are no particularly compelling reasons to believe that what happened with synthetic colored stone prices will not happen with synthetic diamond prices, meaning that eventually they will become just a small fraction of that of the natural stones. There is nothing inherently wrong with that – it’s simply economics. But the problem is that millions of consumers who bought laboratory-grown diamonds believe that it is similar to a natural diamond – which would imply that should maintain its real value, and also be tradeable on a second-hand market.”

“Why do I see this as one of the most serious threats to consumer confidence that we have ever faced? Because when those consumers realize that their laboratory-grown diamonds have essentially no resale value, they will feel deceived and cheated. They will likely not only lose confidence in the unique selling proposition of laboratory-grown diamonds, but also in the USP of natural diamonds and the USP of jewelry in general,” Cavalieri stated.

The time is fast approaching in which the pricing model used for laboratory-grown stones will have to change, ending the currently preferred of discounting the price of an equivalently graded natural stone, said Andrey Zharkov, a  laboratory-grown diamond trader and former president of Alrosa.

NEW PRICING MODEL REQUIRED

In comments made during a CIBJO-organized webinar in July, Andrey Zharkov, a former president of the Russian diamond mining company Alrosa and today a laboratory-grown diamond dealer, intimated that the time is fast approaching in which the pricing model used for laboratory-grown stones will have to change.

“Honestly speaking, I think that, in the future, in two or three years, we will see more pricing for laboratory-grown diamonds based on benchmarking,” he said. “It will be an important differentiation for laboratory-grown diamonds and natural diamonds.”

Zharkov admitted that currently most lab-grown sellers still base their prices on the Rapaport list, although fancy colored diamonds are priced differently. “The prices of fancy colored lab-grown diamonds and natural diamonds cannot be compared, he stated.

From the introduction of jewelry-quality laboratory-grown diamonds, the dominant business model used in the sector involved discounting their prices against the prices asked for natural diamonds of similar quality. This is despite the fact that the relatively high price asked for a high-quality natural diamond is a function its rarity, were as a similar laboratory-grown diamond can be ordered at will, as long as the producer has the technical capacity and a proper quality control system.

When De Beers launched its laboratory-grown diamond brand Lightbox Jewelry in 2018, it introduced a new fixed-pricing model, irrespective of the clarity or color of the stone. But most other producers have not followed suit, hoping to perpetuate as long as possible the tenuous link between the prices of the two products.

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